Entertainment

Why is HBO Going OTT and What Does it Mean?

Cord cutters received some of the most welcome news they'd heard since House of Cards premiered on Netflix: HBO will in 2015 unveil a streaming (also known as Over The Top or OTT) option that can be purchased without a cable subscription. In essence, no cable provider necessary to gain access to HBO Go.

The announcement caught most people off guard and, with the slim-to-almost-non-existent information HBO offered as part of the preciously short press release, they were left with a raft of questions. Let’s walk through them. We won’t have all the answers, but we can certainly use logic, intuition and some sources to help us figure some of them out.

Why Now?

HBO’s investors meeting was on Wednesday and, since OTT is officially part of its 2015 plan, it had no choice but to announce. Putting out a press release allowed HBO to control at least some of the message, instead of having some investor leak and maybe misinterpret what they heard in the meeting.

There’s also the money. As HBO Chairman and CEO Richard Plepler noted, there are 80 million people in the U.S. without HBO. Even if only a fraction of them sign up for HBO OTT at $10 a month, it’s at least a $1 billion opportunity.

Graham Kill, CEO of Irdeto, which works with studios and content providers (like cable and OTT companies) to help them distribute and protect content on any screen, agrees. “Revenue from pay TV partners has reached the point or is heading to the point where cannibalization is less concerning vs. the potential opportunity, said Kill.

What Does OTT Mean?

For HBO, an over the top option can mean a few different things:

HBO OTT (likely still called HBO Go) is offered as an option by broadband service providers. That’s right, the same people selling you your cable services will ask if you want it to come with HBO Go access (pretty much the same as when they ask you if you want to buy collection of HBO cable channels).

It’s an option on set top boxes and consoles, but without the requirement of a cable plan. In other words, you’ll find HBO Go on Apple TV, your Xbox or Google’s Chromecast, but instead of entering your cable company details for access, you’ll buy the content plan through Apple, Google or Microsoft.

HBO sells direct to consumers, just like Netflix.

Is this the end of cable?

In a word, no. HBO is not only still a cable partner, it gets most of its money from cable providers.

The cord-cutting trend is real, but it is also slow. It will take years and possibly decades for this shift to cause dramatic changes in the broader media market.

Just how much of HBO will be a part of this OTT service?

When you order HBO from a cable company, they often bundle Cinemax. In the case of HBO OTT, it’s more likely HBO will dip its toe in that water and measure response (though they likely know a lot about how a service like this will play from HBO GO) before bundling in any channel that doesn’t have “HBO” in the name.

I do expect them to include all the key HBO programs like Game of Thrones (who would want HBO without it?).

Lawrence Low, Irdeto’s VP of Business Development, said HBO’s parent, Time Warner, will want to measure results and prove that HBO OTT is a real growth opportunity. “Time Warner needs to show they can generate higher growth with existing management and not as part of 21st Century Fox,” said Low.

Will cable companies, which also provide broadband access, be able to block?

OTT services like Netflix are poster children for conspicuous broadband bandwidth consumption and, HBO OTT will be no different. That fact should tell you something about how cable companies will treat the service.

No one would dare block HBO OTT, but Time Warner and HBO may find themselves in the unenviable position of being dragged to the peering discussion table to figure out how HBO and Time Warner can shoulder more of the bandwidth and bandwidth costs burdens.

Would HBO consider making its own Set Top hardware?

If HBO follows the Netflix model, then the answer is most certainly no. However, those dongles you plug into the HDMI ports on your TV — Chromecast, Roku Stick — are becoming highly affordable commodities. If HBO is unsatisfied with response and relationships with cable companies that will still have to sell the service on the broadband side or with Apple, Google and Amazon, which will have to include it in their hardware, they could try to go it alone. But I wouldn’t bet on it.

Will others follow?

Short answer? Yes.

“All the studios are to a greater or lesser extent working on direct-to-consumer strategies and we expect to see it to grow in coming years,” said Irdeto’s Kill.

On the other hand, don’t expect a flood in 2015. Viacom and other media conglomerates will likely play a wait and see game. If HBO OTT is successful, it’s only a matter of time before other content companies follow suit.

When that happens, though, cable companies will have to rebuild revenue models, throwing out the cable a la-carte revenue streams in favor of content service partnerships with a much smaller, negotiated cut. The good news for many of them, like Comcast and NBC/Universal, is that they own many of these networks and shows, so they should be making money either way.

If more and more channels switch to an OTT model, broadband demands will also shift and then, even as people “cut the cord,” they’ll probably be be paying significantly more for broadband access.

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